The sharp slowdown in the domestic economy and slower government spending on water projects, which resulted in losses in a number of JSE-listed Distribution and Warehousing Network’s (Dawn’s) businesses, led to a loss before taxes, interest, impairments and derecognitions of R23.9-million for the year ended March 31.
Not only had the second half of the financial year been “severely impacted” by the slowdown, Dawn’s 49%-owned Grohe Dawn Watertech (GDW) subsidiary was also impacted by delayed approval of working capital funding, which disrupted the supply chain and had an impact on earnings at the associate company investment level, as well as on the building trading segment of Dawn and GDW’s largest customer.
“Lower resource prices, foreign exchange volatility and scarcity, and political instability also impacted adversely on Dawn’s rest of Africa business,” the company said in a statement on Friday.
These factors contributed to a headline loss a share of 65.6c and a loss a share of 318.3c apiece for the year under review.
Dawn pointed out that its management team had responded by dropping prices to maintain historical volumes, which exacerbated the impact of the dearth of sales by also reducing gross margins.
“Although the group’s operating expenses were trimmed back aggressively, it has a high fixed-cost base which does not allow for further cost reductions in the short term,” it said.
The group operating margin, therefore, decreased from 3.5% in the first half of the financial year to a loss for the entire year.
The subsidiary businesses which moved into losses were Sangio, Incledon, Pro-Max, Kitchen, Dawn Africa and DPI International, as well as associate company GDW.
Losses after tax, including at GDW, amounted to R130-million. The company had, therefore, decided to make significant impairments to the carrying value of these investments, amounting to R637-million.
The company would now, under the new management of interim CEO Stephen Connely, focus on increasing gross margin in its WHS Trading division, stemming losses in Incledon, returning GDW to profitability and reducing excess working capital to boost its cash flow.
As the economic conditions in South Africa and neighbouring countries were expected to remain “very difficult” for some time, sales would remain under pressure, with most of the loss-making businesses expecting to continue to incur losses in the first quarter of 2017.
The company now aimed to move operating profit margins in the direction of 5% in the trading and 12% in the manufacturing businesses. In the medium-term, duplicated activities would be eliminated and central services costs challenged and benchmarked.